Edited version of your written advice

Authorisation Number: 1051360959074

Date of advice: 04 June 2018

Ruling

Subject: Re-paid compensation

Issue

Repayment of replacement salary and wages from work cover Question 1

Can you exclude the amount repaid to Work Cover from your assessable income?

Answer

Yes

This ruling applies for the following period(s)

Year ended 30 June 2018

The scheme commences on

1 July 2017

Relevant facts and circumstances

You received Work cover payments after an accident at work for the financial years 2015 and 2016. Tax was withheld from these payments at the time of payment.

You later received a lump sum settlement payment in 2017 financial year. This payment included the period during the 2015 and 2016 already covered by the previous payment for replacement of salary and wages.

You were required to re-pay the amount in full previously received during the 2015 and 2016 financial year for replacement salary and wages paid by your employer’s insurer.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 59-30

Income Tax Assessment Act 1997 section 59-30(3)

Reasons for decision

Question 1

Detailed reasoning

Section 59-30 of the ITAA 1997 operates to exclude an amount from your assessable income for an income year if you have repaid it in a later income year and you cannot deduct the repayment in any income year.

However, subsection 59-30(3) of the ITAA 1997 states that section 59-30 does not apply to an amount you must repay because you received a lump sum as compensation or damages for a wrong or injury you suffered in your occupation.

As you received compensation for a work place injury, subsection 59-30(3) of the ITAA 1997 applies in your case. Therefore section 59-30 of the ITAA 1997 has no application in your circumstances.

Taxation Ruling IT 2107 states that where workers’ compensation is awarded after payment of assessable sickness benefits, the appropriate amount of sickness benefits is to be repaid to the Director General of Social Security. Provision is made for the repayment from the lump sum payment due to the employee. In these circumstances it is considered that the amount of the lump sum arrears of compensation reduced by the amount of sickness benefits repaid to the Director General of Social Security is the amount to be included in the assessable income of the compensated party in the year of receipt.

While in your case the payment is not sickness benefits it is for the replacement of salary and wages and in both the initial payment and the lump sum are both been treated as assessable in both circumstances. The repayment was the gross amount received which included the amounts that had been previously withheld in the 2015 as well as 2016 financial years.

You received support from the employer’s insurer after your workplace injury. You were subsequently awarded a lump sum workers’ compensation payment. A portion of the lump sum received was used to repay the gross amount previously paid by the insurer for the support you had already received for replacement of salary and wages.

Therefore, in applying IT 2107, the lump sum payment included as assessable income on your 20017 income tax return should be reduced by the amount of assessable replacement wages payments you received for the same period paid by the employers insurer.

In your case, you received assessable replacement of salary and wages in the 2015 and 2016 income years. Therefore, the assessable lump sum payment amount should be reduced by the amount previously received in your 2016-17 income tax return. The amount at Item 1 for salary and wages received should be reduced by the medical expenses as they would not be assessable in the 2017 financial year.